11 Sep 2023 7:00 AM GMT
The National Company Law Tribunal (“NCLT”), Kolkata comprising of Smt. Bidisha Banerjee (Judicial Member) and Shri Balraj Joshi (Technical Member) allowed an application filed in Mr. Sanjeev Jhunjhunwala vs. Mr. Bimal Kanti Choudhury against PM Cold Storage Private Limited (“Respondent”) for the payment of Corporate Insolvency Resolution Process (“CIRP”) costs and pass an...
The National Company Law Tribunal (“NCLT”), Kolkata comprising of Smt. Bidisha Banerjee (Judicial Member) and Shri Balraj Joshi (Technical Member) allowed an application filed in Mr. Sanjeev Jhunjhunwala vs. Mr. Bimal Kanti Choudhury against PM Cold Storage Private Limited (“Respondent”) for the payment of Corporate Insolvency Resolution Process (“CIRP”) costs and pass an Order appointing another person as the Resolution Professional (“RP”) for the Goouksheer Farm Fresh Private Limited ("Corporate Debtor”).
The Tribunal held that an Insolvency Professional engaged as an RP deserves remuneration for their labor and services as approved by the CoC and once the fees have been approved it cannot be reduced without the consent of the Resolution Professional.
On 13.12.2019, the CIRP against the Corporate Debtor was initiated. The RP was appointed by the Committee of Creditors (CoC), with a monthly fee of Rs. 50,000. The Respondent, the sole member of the CoC, promised to pay Rs. 2 lakhs as CIRP expenses and suggested that the RP should secure an Overdraft against a fixed deposit held with HDFC Bank which couldn’t be obtained due to a lien placed by the sales tax department.
Furthermore, the RP mentioned that no Resolution Plans were received due to which an application for the liquidation of the Corporate Debtor was filed. The Corporate Debtor lacked any active operations and significant assets, apart from certain fixed deposits. Due to a constant shortage of funds during the CIRP, the RP had to personally finance CIRP expenses, which were repeatedly communicated to the CoC. However, the CoC failed to address this issue, significantly impacting the chances of a successful resolution.
In the CoC meeting, the RP expressed concerns about the lack of reimbursement for CIRP expenses despite the diligent performance of his duties and proposed that financial creditors should fund CIRP expenses in proportion to their voting share, but no response was received. The RP also lodged a complaint against them with the Insolvency and Bankruptcy Board of India (“IBBI”), which was subsequently dismissed after a review of all relevant records. To cover CIRP costs, the RP filed an application which is currently pending.
Despite this, the CoC has not provided a means for further payments, and the RP has not received fees for over two years since August 2020. The RP emphasized that, as an Insolvency Professional, he is entitled to receive fees approved by the CoC. He also stated that he is no longer willing to continue as the Resolution Professional and requested the appointment of a replacement.
The NCLT allowed the application and held that as per NCLAT’s order dated 14.09.2022, the conduct of the RP raised questions for an investigation. However, the IBBI had only issued an email notice to the RP, which was responded to by the RP. There was no penalization by the NCLAT or instructions to withhold payments including CIRP Costs and the expenses incurred by him while overturning the NCLT's order.
The NCLT observed that an Insolvency Professional engaged as an RP deserves remuneration for their labor and services as approved by the CoC. Even Regulation 34 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, stipulates that the CoC should determine the expenses incurred by or on behalf of the RP, and these expenses constitute CIRP costs.
The Tribunal pointed out that the minutes of the 01st CoC meeting provide that the COC proposed and approved the RP's fees. Further, in the matter of Mr. Mukesh Verma, for SAB Global Entertainment Media Private Limited, the NCLT Mumbai Bench had observed that once the fees have been approved it cannot be reduced without the consent of the Resolution Professional.
It also placed reliance on Jayesh N. Sanghrajka, R.P. of Aristo Developers Pvt. Ltd. vs. The Monitoring Agency nominated by the Committee of Creditors of Aristo Developers Pvt. Ltd. wherein the NCLAT held that the fee has to be directly related to the expenses incurred necessary for the CIRP. It held that whether the fees paid to advocates and other professionals appointed by RP fall under the expense incurred directly for CIRP is a matter to be decided by the CoC.
The Tribunal instructed the CoC to take the necessary steps to reimburse all outstanding fees, including CIRP costs and professionals' fees incurred by the RP. It also directed the CoC to promptly initiate the release and discharge of the RP from his duties and propose a new name for the Resolution Professional to continue the CIRP.
In conclusion, the NCLT directed the IBBI to conclude the investigation against the RP regarding his conduct and take appropriate action under the regulation, if not already done. It also dismissed the pending application before NCLT for similar cause by the RP.
Case Title: Mr. Sanjeev Jhunjhunwala vs. Mr. Bimal Kanti Choudhury
Case No.: I.A. (IB) No. 83/KB/2023 in C.P. (IB) No. 1582/KB/2019
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